gdp as a measure of progress and human development: a process of conceptual evolution

Richard L. Brinkman is professor emeritus in economics and international studies and June E. Brinkman is retired adjunct, sociology faculty at Portland State University. This paper was presented at the annual meeting of the Association for Evolutionary Economics, January 7-9, 2011 in Denver, Colorado.

447 ©2011, Journal of Economic Issues / Association for Evolutionary Economics

JOURNAL OF ECONOMIC ISSUES Vol. XLV No. 2 June 2011 DOI 10.2753/JEI0021-3624450222

GDP as a Measure of Progress and Human Development: A Process of Conceptual Evolution

Richard L. Brinkman and June E. Brinkman

Abstract: The GDP concept has historically been used to measure human well-being and progress. This analytical purview is now coming into question. The GDP concept limits analysis to the economic factor and ignores the social and cultural. Analysis should focus on how well the people are doing. An avalanche of studies is now being directed toward dethroning the GDP as the sole indicator of human well-being and progress. This has been manifest in the derivation of many social indexes which indicate that while the global economy as well as the American economy are experiencing GDP growth, basic needs are not being fulfilled. Keywords: economic development, economic growth, GDP, human develop-ment, human needs JEL Classification Codes: E10, O4, O10, O15

A litany of social economists and Veblenian institutional economists have long since sought to demonstrate how and why the social factors should not be disembedded from economic analysis and policy. The GDP indicator has historically come to reinforce this separation by relying on economic forces in isolation from the social. Use of the GDP indicator serves to castigate or praise economic performance, in terms of prices, markets and production. While at the same time it avoids the societal impact that is inherent in the economic process. Alternative indicators for an evaluation of the economy in terms of the social, as well as the economic, are sprouting as mushrooms in a wet forest. Alternative indicators are being suggested in a growing literature, for example: “The Rise and Fall of the GDP” (Gertner 2010). Why is this apparent conceptual shift, from the predominantly and sole economic

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GDP indicator to an increased attention and holistic emphasis to social indicators now taking place?

Conceptual origination and clarification constitute central features of scientific inquiry. The focus of this paper relates to the concepts of economic growth and economic development which appear as necessary concomitants to human development and progress. From the neoliberal, mainstream perspective, the desideratum relates profit maximization to enhanced economic growth, and from this the result is assumed to be the achievement of human well-being and progress. The measure of this growth process has come to be called the GDP indicator.

An answer to this question requires the need to clarify the meaning of economic growth, economic development and human development as concomitant concepts related to human progress. Many have treated the process of economic growth as being synonymous with that of economic development. “[I]n Western postwar thinking and writing economic development was interpreted as virtually synonymous” (Arndt 1987, 2, 49-88). “Distinguishing between the two concepts does not appear worthwhile” (Baran 1957, 1-18; Dorfman 1991, 573). The new (neoclassical) growth theories are to the extreme in treating economic growth as being synonymous with economic development (Brinkman and Brinkman 2001). Others writing in the field of development economics draw a distinction: “This leads on to the distinction between growth and development” (Brinkman 1995; Thirlwall 2003, 1-70; Todaro and Smith 2009, 1-38, n6).

But why not treat the two concepts as being synonymous? For example: if advanced industrial nations are characterized by GDP/capita to a process of economic growth that reaches to a proximate magnitude of $35,000 to $40,000 per capita is this not also indicative of economic development? Therefore, are not the two concepts synonymous? An answer to this question arises in the explanation as to how the advanced industrial nations achieved such a high level of GDP/capita. This has not been achieved by a process of economic growth, but rather has been achieved via a process of economic development. Economic growth and economic development are interrelated, but economic growth by itself will not lead to economic development. Whereas economic evolution is comprised of both economic growth and development, the two concepts are not synonymous. The process of growth relates to replication and reproduction. By comparison, economic development relates to transformation and metamorphosis.

Schumpeter viewed the growth process as quantitative, whereas development concerns the qualitative, as structural transformation. “Add successively as many mail coaches as you please you will never get a railway thereby” ([1930] 1983, 64). This need for structural transformation is depicted in Figure 1, “The Logistic Surges of Transportation Technology” (Allen 1957; Hart [1946] 1957). Humankind did not advance in transportation technology from 4 to 15,000 to 20,000 miles per hour by running faster or by hitching up more horses, as a growth process of more and more of the same. The speed as measured to the level of 15,000 to 20,000 miles per hour was achieved via a developmental process of structural transformation. The “Principle of Similitude” as noted by Galileo, D’Arcy Thompson and Daniel Bell, supports the

GDP as a Measure of Progress and Human Development

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position that ongoing growth is predicated on a process of continuous structural transformation (Bell 1973, 171-74). A teepee cannot grow to the height of a skyscraper nor a dugout canoe to the Queen Mary.

There is another important distinction to be made between economic growth and development in the overall evolutionary process, which warrants further conceptual clarification. The pattern of “logistic surges” serves to draw a conceptual distinction between specific evolution and general evolution (Sahlins and Service 1960, 12-44). Briefly, specific evolution takes place within a given structure such as propeller aircraft, between vintage Wright brothers circa 1903 and P-38s and B-29s of WW II fame. General evolution, by comparison, relates to a paradigmatic shift, as a sequential pattern, in which one structure gives rise to the next. In terms of transportation, technology has shifted from railroads to jets and on to rockets.

It is the ongoing dynamics of structural transformation, as to general evolution, that relates to the process of economic development writ large. The process of general evolution is depicted in Figure 2, “Human Evolution and the Stages of Culture Evolution.” Humankind in a hunting and gathering stage of general culture evolution, given low levels of energy control and limited material tools, cannot achieve high levels of economic production. The dynamics inherent in structural transformation must be innovated as the process of economic development. “It is my . . . guiding confession that I believe the greatest error in economics is in seeing the economy as a static, immutable structure” (Galbraith 1994, xii).

Figure 1. The Logistic Surges of Transportation Technology

Miles/Hour

Nuclear Rocket

Chemical Rocket

Jet Aircraft

Propeller Aircraft Auto

Trains

Pony Express

1800 2000 1900

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Another institutional economist, Gunnar Myrdal, has defined economic development as “the movement upward of the whole social system,” and further, Myrdal was early among other economists to question the usage of a single economic indicator, such as GDP, to serve as a measure of the whole social system. “Only a holistic, what I call ‘institutional’ approach is logically tenable” Myrdal 1968, 1868-1870; 1974, 729-730). Economists writing in the field of economic development are of a similar predilection concerning their conception of economic development that is relegated to the overall social system (Thirlwall 2003, 21; Todaro and Smith 2009, 13). By comparison, mainstream economists have focused on the economic process

Figure 2. Human Evolution and the Stages of Culture Evolution (Levels of Energy Control)


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disembedded from the social. Myrdal along with Polanyi and many other institutional economists have addressed the importance of the noneconomic as well as the economic. This analytical and conceptual focus would naturally seek a measure of the economic process and progress outside of a limited economic factor, such as GDP. By comparison, the new (neoclassical) growth theories nurture a sleight of hand in their conception of growth as being synonymous with economic development. Given the assumption that growth is synonymous with economic development, theories of economic growth, ipso facto, become theories of economic development. Therefore indicators of growth, as the GDP indicator, come to be designated as indicators of development. As a result, increased elegance of exposition and theory came to be achieved at the opportunity cost of decreased relevance.

At the outset, in their personal discussions, Mahbub Haq and Amartya Sen “‘thought there was a silliness about identifying growth with development’” (Gertner 2010, 9). From this vantage of wisdom they, and many others, felt the need to go beyond the limited economic arena relegated to the GDP indicator as a singular basis to measure human well-being and progress. Much should and can be done to improve national income accounting while also dealing with the negatives (Atkinson 2008). Given our current macro-economic problems this is hardly the time to throw out the baby, as national income accounting, with the bath water. Nonetheless there is a need to go beyond a limited economic area relegated to the GDP indicator as a singular basis to measure human progress. However, there is a need to conflate the GDP indicator with quality of life indicators that include the social.

Currently, many attempts are being directed toward including a social accounting in developing indexes that are oriented toward going beyond the GDP economic indicator (Miringoff and Opdycke 2008, 70-76). Out of the many alternatives, the Human Development Index (HDI) appears to be a leading candidate to serve as an addendum to the GDP indicator as the basis for measuring human progress. The HDI made its first appearance in the Human Development Report 1990. “At the international level, by far the best-known index of social well-being is the Human Development Index (HDI)” (Miringoff and Opdycke 2008, 10). The report was commissioned by the United Nations Development Programme (UNDP). Mahbub ul Haq pioneered, directed, and supervised the origination, development and innovation of the HDI. The result was to formulate a foundation for Implementing a Human Development Strategy (Griffin and McKinley 1994). The work of Haq, and a staff of leading experts, including Amartya Sen, served as a model for The Measure of America: American Human Development Report 2008-2009 (Burd-Sharps, Lewis and Martins 2008). This study in offering an American Human Development Index (AHDI) replicated the HDI, in terms of methodology, analysis and conceptual emphasis. A primary difference, however, is that the study in focusing on The Measure of America, constitutes the first to apply the well-honed international approach of the HDI to a specific nation. Two ways exist to analyze progress in America, one relates to the traditional approach which raises the question: How is the economy doing? Whereas by comparison, the HDI and AHDI raise the question: How are the people doing? (Burd-Sharps, Lewis and Martins 2008, 10). An equally weighted composite

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exists, as an underlying tripod, in the formulation of the AHDI. One leg relates to longevity and health; a second leg relates to knowledge and education; and, the third leg relates to income and the quality of life. An AHDI is given for each state as well as the total for the United States (13, 32-33).

Of interest, the income factor is conflated into the quality of life, though as a watered-down version of the GDP indicator. “Income enables valuable options and alternatives, and its absence can limit life chances and restrict access to many opportunities . . . The measure used in the Human Development Index to represent standard of living is earnings and includes only income generated by labor” and relies upon median income (Burd-Sharps, Lewis and Martins 2008, 6-7). In this context the GDP, as a limited economic income factor, constitutes a necessary condition though not sufficient as a sole indicator of human progress.

The AHDI has vindicated our predilection that economic growth is not to be assumed as synonymous with that of economic development. For example, in the year 1980, the AHDI for the United States ranked #2, among twelve peer nations. By 2005 however, the United States ranked #12, at the very bottom. Therefore, while the United States was growing it was not developing. Once again this grants empirical support to the conclusion that economic growth is consequently not synonymous with economic development. High levels of economic development are not to be assumed as continuous once having been achieved. From Amartya Sen, “[w]e get in this report not only an evaluation of what limitations of human development are in the United States, but also how the relative place of America has been slipping in comparison with other countries over recent years” (Burd-Sharps, Lewis and Martins 2008, vii). Of significance and from the vantage of globalization and the issue of competitiveness is the fact that the period 1980 to 2005 is demarcated by the heyday of neoliberalism and free-market ideology and policy. The quality of life was also reduced during this period, which ran counter to the admonition of the Presidents Commission on Industrial Competitiveness 1985, and should not be achieved by a reduction in the quality of life for hard working Americans.

Another attempt to introduce an accounting of the social factor into the calculus of human progress is contained in a “Report by the Commission on the Measurement of Economic Performance and Social Progress,” chaired by Joseph Stiglitz (2010). As stated on the homepage of the Commission’s website:

Increasing concerns have been raised since a long time about the adequacy of current measures of economic performance, in particular those based upon GDP figures. Moreover there are broader concerns about the relevance of these figures as measures of societal well-being, as well as measures of economic, environmental, and social sustainability.

Reflecting these concerns, President Sarkozy decided to create this Commission to look at the entire range of issues. Its aim is to identify the limits of GDP as an indicator of economic performance and social progress. (Commission on the Measurement of Economic Performance and Social Progress 2010)


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A quandary exists in deciding which indicators should be included in the composite. In this context, Stiglitz introduced the automobile-dashboard metaphor which includes the fuel gauge, speedometer, temperature gauge, and on, in the operation of the automobile (Gertner 2010, 10-22). The Miringoff and Opdycke (2008) study, as with the AHDI, deals with the social issue from a focus on America. The centerpiece of their excellent work is directed to the formulation of an Index of Social Health (ISH). The index is comprised of 16 basic indicators that are used to question the reliance on the GDP, alone, as an indicator of the social health of America (Miringoff and Opdycke 2008, 70-71). For the years 1970 to 2005 GDP/capita increased by 104.1% whereas the ISH decreased by 19.7%. The economic growth taking place during this period was not being funneled into a fulfillment of basic human needs for hard working Americans. This is depicted in Figure 3, “Gross Domestic Product Compared to Index of Social Health” (Miringoff and Opdycke 2008, 74). In any event, during the period of the heyday of neoliberalism (1970 to 2005), the quality of life for Americans, writ large, was not being improved upon as measured by AHDI and or the ISH. Yet the President’s Commission on Industrial Competitiveness (1985) was advocating that global competitiveness should not be achieved at the cost of a decreased quality of life for American citizens, but what has been the purpose of the ISH? “The index was created with the goal of advancing the public dialogue, enriching our thinking about social conditions, and strengthening the nation’s capacity to address its social problems” (Miringoff and Opdycke 2008, 10).

While all to the good the AHDI, in the HDI tradition, however, appears to go further and ratchets up the purpose and goal to focus on the relation to human development and its concomitant process of economic development. What is meant by the concept — human development? One approach, as addressed in the HMI and AHMI framework, is to define human development as: “A process of enlarging people’s opportunities and freedoms and improving their well-being enabling them to lead long healthy lives; have access to knowledge; to enjoy a decent standard of living; and to participate in the decisions that affect them” (Burd-Sharps, Lewis and Martins 2008, 219).

Index of Social Health

150

100

50

0

Index of Social Health

GDP

GDP per capita, 2002 $

45,000

30,000

15,000

1970 1975 1980 1985 1970 2000 2005 2000

Figure 3. Gross Domestic Product Compared to Index of Social Health

Sources: Institute for Innovation in Social Policy and U.S. Bureau of Labor Statistics.

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The evidence is clear, GDP/capita does not serve as a singular basis for an evaluation and measure of human well-being and progress. Basic human needs are simply not being met. But still, there is a need to further explain why and how the human development process needs, as an ongoing concomitant, the dynamics of economic development. Kuznets noted the importance of knowledge in its interrelation with the economic process. “It may be better to call explicitly for a theory of the production of such knowledge as an indispensable focus for direct and continuous concern with the complex of forces involved here and with their effects on economic growth” (Alperovitz and Daly 2008; Brinkman and Brinkman 2006; Kuznets 1968, 62). Consequently, the concomitant connection between human and economic development resides in the exponential advance of knowledge.

What follows is depicted in Figure 2 on page 450 above, “Human Evolution and the Stages of Culture Evolution.” Humankind interacts with an environment comprised of physical resources and culture and from which new knowledge is originated and nurtured and appears in its application as technology, both material and social. As opposite sides of the coin of knowledge, culture appears as stored knowledge. Therefore to change technology is to change culture in that both technology and culture are at root different forms of knowledge, and different as to function (Brinkman 1992, 1997). Technology serves as the core of culture and accounts for the dynamics of general culture evolution, and as such serves to potentially advance an ongoing potential continuity of the human life process (Tilman 2004, vii, 102-104; Veblen 2003, 72). Therefore, humanity’s ongoing human development is predicated on the ongoing dynamics as the process of economic development serving as the process of general culture evolution. It is in this way that humankind takes bigger and bigger bites of the infinity of knowledge and in the process potentially advances the capacity and capability to become more human.

This mission cannot be left to the mythical powers of a Self Regulating Market system (SRM) guided by “natural” law, but rather can be founded on human choice and rationality. The system engulfed by privatization and laissez-faire policy has not worked. The trickle-down tenet of neoliberalism is no longer working today. It also has not worked in the past. “That the majority of economists still cling to their traditional analysis is to Veblen merely the latest illustration of the cultural lag in social theory a lag readily accounted for by the institutional approach” (Mitchell [1936] 1964, xlviii). In such a malaise and societal fragmentation, society must seek adjustments via new structures of social organization as social inventions relevant to a human development strategy (Brinkman 1996; Klein 2007; Kuhn 1996). While at this juncture what is required is a political form of social organization as social technology. “The idea of social engineering fills all of us with horror, with visions of 1984. But like it or not the policies that we adopt today do shape our society . . . Economics and society are inextricably intertwined” (Stiglitz 2003, 319). “To deny the social is to deny the solution.”


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